Many zip codes seem to me to be safe to buy in because home prices have fallen so low that a lot of homes are selling. (Watch the video.) It seems the market kinda likes the current prices.

Video – Phoenix median home prices by zip code through May 2010

http://content.screencast.com/users/JohnWake/folders/Jing/media/fe95388f-9baa-4e0b-b8ed-0b282c428956/jingh264player.swf

What I’m Worried About

I worry about two things; 1) the $8,000 first-time home buyer tax credit has ended, and 2) we are going into the weaker half of the year for home sales and prices.

So, if we were going to see any final home price declines in metro Phoenix in this cycle, I bet it would occur in the next six months. (As always, I’m not taking about all zip codes. Some high priced zip codes could continue falling into 2011.)

What Happens When Interest Rates Rise?

Oh yeah, what happens to Arizona home prices once interest rates bounce off their current incredible lows? Well, sales have been pretty high in a lot of zip codes so we wouldn’t see big price declines right away, if at all, depending on the amount of the increase in interest rates.

The number of Arizona home sales could fall off a lot before pressure would be put on Arizona home prices in those zip codes.

Won’t Foreclosures Keep Pushing Arizona Home Prices Down?

Sure, we’re going to continue to see huge numbers of foreclosures for a few years but that doesn’t necessarily mean Arizona home prices will continually fall. At some point, Arizona home prices will be so low that the market will clear all the inventory, including the foreclosed homes, without further home price declines.

At that point the high number of foreclosures will keep Arizona home prices from rebounding but the foreclosures won’t cause further price erosion. We’re already seeing this in some Arizona zip codes.

In a few years when foreclosures quit pumping huge numbers of homes onto the market every month, Arizona home prices will be able to increase again.

How Foreclosures and Short Sales affect Home Prices

  1. High levels of foreclosures and short sales drive down home prices until home prices are so low that home sales rebound.
  2. Then high levels of foreclosures and short sales just keep home prices down.
  3. When eventually the number of foreclosures and short sales falls toward more normal levels, home prices can then rebound.

All 124 zip code real estate charts available in the right-hand column have now been updated through MAY 2010 with the number of home sales, the median home price and the median home price per square foot.